Source : SCMP
Natalie Chiu and Maria Chan Mar 28, 2009
China Construction Bank (SEHK: 0939) Corp (CCB), which posted a 30 per cent drop in fourth-quarter earnings yesterday, said it would maintain lending growth at 16 per cent this year but warned of higher loan defaults due to the economic downturn.
"The bank will encounter greater pressure in controlling its non-performing assets with the slowing domestic economic growth, declining exports and adjustments in the property industry," said the state-owned lender, in which Bank of America Corp owns a 16.6 per cent stake.
The world's second-largest lender by market value also warned that mainland commercial banks would see net interest margins shrink in the current falling interest-rate cycle.
CCB said full-year net profit rose 34.1 per cent to 92.59 billion yuan (HK$105.04 billion), lagging the consensus estimate by Bloomberg of 99.6 billion yuan. A final dividend of 8.37 fen per share was proposed, bringing the full-year payout to 19.42 fen.
In a sign of worsening business conditions for mainland banks, CCB's net profit fell to 8.4 billion yuan in the fourth quarter from 12 billion yuan a year earlier.
Analysts blamed CCB's quarterly decline on the sharp rise in provisions for bad loans and soured overseas investments, which soared 84.2 per cent to 50.82 billion yuan last year.
Lee Yuk-kei, a senior analyst at Core Pacific-Yamaichi, said the bank was likely to report again an earnings decline in the first quarter.
"The big jump of impairment charges is partly because the mainland banking regulator asked banks to raise their provision coverage," Mr Lee said. "But the provision made this quarter may not be as much as last quarter."
Kenny Tang Sing-hing, the research head at Redford Securities, said many of the new loans this year were for infrastructure and discount projects, so the default risk should be lower.
CCB reported relatively low exposure to subprime-related assets, the bankrupt US investment bank Lehman Brothers and securities related to Fannie Mae and Freddie Mac. It set aside US$730 million to cover subprime mortgages and US$190 on Lehman Brothers.
The lender did not say whether Bank of America would sell more of its shares in CCB. In November last year, the US bank paid US$7 billion to almost double its stake in the mainland bank to 19.13 per cent.
Then in January, Bank of America trimmed its holdings in CCB to 16.6 per cent, selling 5.6 billion Hong Kong-listed shares in a placement that raised US$2.8 billion.
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